The Central Bank of Nigeria (CBN) announced on Tuesday that it will continueproviding financing to the federal government through its Ways and Means facility, with a cap set at 5% of the previous year’s revenue for the 2024-2025 fiscal year.
This measure, designed to address budget shortfalls, has long been a critical, though controversial, source of liquidity for Nigeria’s government. The Ways and Means facility will allow the CBN to extend short-term loans to the government to cover budgetary gaps, a practice that has become increasingly central to Nigeria’s fiscal operations in recent years.
However, the CBN Act stipulates that these advances should not exceed 5% of the federal government’s previous year’s revenue. Despite this legal restriction, the limit has often been breached, raising concerns about fiscal discipline and monetary stability. In its newly released Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines for the 2024-2025 fiscal years, the central bank reaffirmed its commitment to enforcing the 5% ceiling.
“Ways and Means Advances shall continue to be available to the Federal Government to finance deficits in its budgetary operations to a maximum of 5.0 percent of the previous year’s actual collected revenue,” the CBN said in its policy document. The central bank also emphasized that these advances are intended to be repaid promptly, stating that they “shall be liquidated as soon as possible and shall, in any event, be repayable at the end of the year in which it was granted.”
Furthermore, the CBN noted that the calculation of advances would now take into account the sub-accounts of various Ministries, Departments, and Agencies (MDAs), which are linked to the Consolidated Revenue Fund (CRF) under the Treasury Single Account (TSA) arrangement.
This announcement comes after CBN Governor Olayemi Cardoso’s statement in February, in which he pledged to halt further Ways and Means advances until all outstanding debts were repaid. Cardoso’s commitment underscored the growing scrutiny over the federal government’s reliance on the facility, as accumulated debt from the program had swelled to unprecedented levels.
The national assembly has also been actively engaged in the discussion, with some lawmakers advocating for a higher limit. In February, the Senate passed the second reading of a bill seeking to raise the Ways and Means cap from 5% to 10%, a move that reflects the government’s ongoing fiscal pressures. However, despite these efforts, the CBN has maintained its stance on sticking to the 5% threshold, at least for the coming fiscal years.
OUTSTANDING OVERDRAFTS AND DEBT ACCUMULATION
The use of the Ways and Means facility has raised concerns about the sustainability of Nigeria’s debt levels. Over the years, the federal government’s reliance on this overdraft-like mechanism has led to a significant accumulation of debt.
In late 2022, Nigeria’s outstanding debt to the CBN through Ways and Means advances was reported to exceed N23 trillion ($30 billion), sparking debates about the prudence of using central bank financing to plug fiscal holes. By the time former president, Mohmmadu Buhari exited power, the overdraft from the CBN has exceeded N27 trillion, with legislation passed to securitise the outstanding debt by the National Assembly.
In the last one year of President Bola Tinubu, the CBN has extended around N16 trillion in Ways and Means to support government fiscal operation, with the government running the main budget and two other suplimentary budgets for the year.
The government’s heavy borrowing from the CBN has fueled inflationary pressures and raised alarm over the potential impact on monetary policy. Critics argue that excessive use of the facility undermines the independence of the central bank and erodes investor confidence in the government’s fiscal management. On the other hand, proponents claim it is a necessary tool to ensure liquidity and maintain government operations in the face of dwindling oil revenues and high expenditure demands.
FUTURE IMPLICATIONS
The CBN’s decision to maintain the 5% limit could be seen as a step toward enforcing greater fiscal discipline, as Nigeria continues to grapple with budgetary challenges.
The ongoing reliance on central bank financing, however, indicates that the federal government will need to explore alternative sources of revenue or risk exacerbating the country’s debt burden. With debates over expanding the Ways and Means limit still ongoing in the National Assembly, the future of this key financing mechanism remains uncertain.
What is clear, however, is that Nigeria’s fiscal policy will be closely monitored in the coming years as it navigates the balance between meeting immediate budgetary needs and maintaining long-term monetary stability.
